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Our NewsletterIssue No. 31: Taking Dead Aim at the Role of Pharmacy Benefit Managers in Raising Drug Costs
(Plus the Gag Rule and More on 340B) President Trump’s May 11 speech on lowering drug prices took aim at pharmacy benefit managers, or PBMs. He didn’t mention them by name or acronym, but his intention was clear. “Our plan,” he said, “will end dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients.” He added, in unmistakably Trumpian language: “We’re very much eliminating the middlemen. The middlemen became very, very rich. Right? Whoever those middlemen were – and a lot of people never even figured it out – they’re rich. They won’t be so rich anymore.” A more detailed 44-page blueprint, issued by the Department of Health and Human Services (HHS) and titled “American Patients First,” took a more subdued tone. Clearly, PBMs are not going to be eliminated, but the administration, including not just the President but HHS Secretary Alex Azar and Food & Drug Administration Commissioner Scott Gottlieb, want reform. A study by the Berkeley Research Group last year does a good job explaining the role of PBMs. “Within the U.S. healthcare system,” it said, “the flow of dollars in the pharmaceutical marketplace is a complex process involving a variety of stakeholders and myriad rebates, discounts, and fees—some of which are paid after a prescription drug is dispensed to the patient.” Key players in that complex process are PBMs. Working for health insurance plans, they never take physical possession of drugs. Instead, “they aggregate the buying power” of their clients “by negotiating discounted purchase prices with retail pharmacies, purchasing drugs at discounted prices for delivery by mail, and separately securing rebates on brand pharmaceuticals from manufacturers.” Rebates are the source of much of the Trump Administration’s animosity toward PBMs. The PBMs negotiate with drug companies, offering members of insurance plans access to their medicines in return for rebates, which are payments made after patients receive their medicines. Who gets the rebates? Not patients themselves, but employers and their insurance plans (and the PBMs often take some of the rebate for themselves). These rebates are substantial – an average of 34% of the net price of brand medicines offered by commercial and Part D Medicare plans in 2017, according to the IQVIA Institute for Human Data Science. Rebates for some classes of drugs – whose manufacturers compete to become plan offerings – are even higher. Rebates for some diabetes medicines are more than 70%. Rebates present several problems. First, they are not transparent. Second, they provide an incentive by PBMs to prefer the medicine with higher list price. And, third, rebates raise the price on which a consumer’s own proportional share of a drug’s cost is calculated. For example, if a drug costs $50 and a consumer’s coinsurance is 20%, then her out-of-pocket cost is $10. But a rebate of, say, $15 may be made to the insurance plan and employer after the purchase, so the real cost should be $35, in which case the consumer’s coinsurance payment should be $7, not $10. The PBM paradigm does not apply in other parts of the health care system. For example, if you visit your dentist you pay coinsurance based on a percentage of the cost of the service that the insurer has negotiated on your behalf with the dentist. A typical dental policy states: “Because your dentist is part of the Preferred Dentist Program, all in-network covered services are billed at a negotiated rate. This means covered services usually cost less than your dentist’s non-negotiated rates for these services.” But for prescription medicines, the coinsurance is based on the full retail price of the medicine at the pharmacy counter – no matter what discounts and rebates the PBM or the insurer has negotiated with the manufacturer. Read more here |
What Others Are Saying"The anger directed at the pharmaceutical and biotech industries overall is misdirected. The single biggest driving force for increased health-care spending in the U.S. is the rising cost of labor, not drugs." "Even if pharmaceutical spending were rising as a share of total health care spending, but that rise was due to pharmaceutical investments driving down expenditures in other health care areas (e.g. a reduced need for more expensive surgeries), then it would still be inaccurate to argue that pharmaceutical spending is driving overall health care inflation." |
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